* Euro knocked off five-week high
* Yen, Swiss franc gain as investors still see uncertainty
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Updates, adds quote)
By Ritvik Carvalho and Iain Withers
LONDON, March 3 (Reuters) - The safe-haven Japanese yen and
Swiss franc gained on the dollar on Tuesday, as investor hopes
for global monetary easing were tempered by concern over how
much it could do to combat the economic damage from the
coronavirus outbreak.
Global stocks and oil rallied on Tuesday, and safe haven
assets -- gold, the yen, and the franc -- were standouts as risk
appetite grew in anticipation of stimulus from central banks.
G7 finance ministers and central bank governors were due to
hold a conference on Tuesday at 1200 GMT to discuss how to deal
with the outbreak and its economic fallout. The call comes with markets already betting the U.S. Federal
Reserve will lead a round of global monetary easing. MKTS/GLOB
However, Reuters reported that the draft G7 statement had no
fresh fiscal or monetary pledges, tempering investor optimism
and encouraging a flight to safety.
The dollar fell 0.34% to 107.95 yen JPY= and 0.14% to
0.958 francs CHF= .
"I think there is some disappointment on the back of the
Reuters report that there's unlikely to be an explicit
stimulus," said Lee Hardman, currency economist at MUFG.
"That has triggered some disappointment. We are in wait and
see mode. Even if we do see a powerful policy response, the
impact of coronavirus will still weigh heavily on the market."
In a statement, expected on Tuesday or Wednesday, the G7
countries will pledge to work together to mitigate damage to
their economies, without giving specifics, a source with
knowledge of the draft told Reuters on condition of anonymity.
That leaves investors again confronting fundamentals: The
virus and the economic slowdown it is causing, and the damage
looks as if it won't be confined to China-exposed assets.
"For many investors there is the view, perhaps, that central
banks can do a lot to help the symptoms of this crisis but
they're not going to entirely make it go away," said Jane Foley,
currency strategist at Rabobank in London.
"There is going to be uncertainty about the economic impact
of this virus, and given that, there will be safe haven demand."
The extra room to respond in the United States, where the
Federal Reserve's benchmark rate is 1.5% to 1.75% compared with
zero in Europe, has weighed on the dollar.
However, after the European Central Bank said it was ready
to take "targeted" steps to fight the virus's effects
the euro fell from a five-week high on Tuesday.
The dollar index was 0.04% higher at 97.571 =USD and the
euro was 0.15% lower at $1.112 EUR=
The Australian dollar AUD=D3 gained after the Reserve Bank
of Australia (RBA) cut interest rates by only 25 basis points,
as anticipated. Markets had priced the possibility of a larger
cut. "Assurances of easier liquidity and fiscal support may help
stabilise the sentiment in the very short term, but the risk of
a higher rate of COVID-19 infections needs to be monitored
closely," Citi EM Asia economist Johanna Chua said in a note.
"The situation remains fluid and a lot depends on how
successful the G7 conference call is in keeping up with the
expectations of coordinated easing."
Euro zone consumer prices came in as expected, rising more
slowly in February than in January, up 1.2% year-on-year after a
1.4% rise the previous month. Later on Tuesday, the results of the Super Tuesday
Democratic Party primaries in the United States are expected.
The Bank of Canada meets to set its policy rate on Wednesday.
World markets performance https://tmsnrt.rs/37RShMa
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>